Ethics Advisory Opinion 11-09
December 01, 2011
Lawyer A represents Defendant in taking Plaintiff’s deposition in a tort case. Plaintiff’s lawyer is also present for the deposition. Under oath, Plaintiff admits to knowingly never having filed state and federal income tax returns, though he has been employed his whole adult life and has been paid in cash. He further testifies that his employer does not withhold payroll taxes or social security from his pay and does not issue W-2s at the end of the year.
1) May Lawyer A report this incident to the IRS and the state tax commission and include a copy of the deposition testimony?
2) Is Lawyer A required to report this incident to the IRS and the state tax commission?
3) If Lawyer A reports to the IRS and state tax commission, must he wait until the litigation is concluded?
A lawyer may report information learned by taking the deposition of the opposing party to tax authorities only with her client’s informed consent as provided in Rule 1.6(a). Since Rule 4.5 prohibits reporting or the threat of reporting to criminal authorities solely to obtain an advantage in a civil action, the lawyer may find it prudent to wait until the litigation is concluded, though the rules do not specifically require it.
Lawyer A may report this incident to the IRS and state tax commission only with her client’s informed consent as provided in Rule 1.6(a). The extent of the disclosure and whether it includes a copy of the deposition testimony would be determined by the client’s informed consent. Since the described incident does not implicate any misrepresentation of fact or other attempt to conceal information from a tribunal, Lawyer A is not required to report this information to the Court under Rule 3.3, and any reporting to the IRS or state tax commission would be voluntary as described above, as the definition of “tribunal” in the Rules does not include the IRS.
Rule 1.6 of the South Carolina Rules of Professional Conduct governs the confidentiality of information gained by a lawyer in representing a client. “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).” SCRPC Rule 1.6(a) (emphasis added). Rule 1.6(b) further indicates when an attorney is permitted but not required to disclose information without first obtaining her client’s consent. Comment 3 to Rule 1.6 expounds upon the emphasized language above: “The confidentiality rule, for example, applies not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source. A lawyer may not disclose such information except as authorized or required by the Rules of Professional Conduct or other law.”
Rule 4.5 as adopted by South Carolina is not included in the Model Rules of Professional Conduct. Rule 4.5 states, “A lawyer shall not present, participate in presenting, or threaten to present criminal or professional disciplinary charges solely to obtain an advantage in a civil matter.” This Committee has previously opined that the threat to report to the IRS would be prohibited under DR 7-105 of the former Code of Professional Responsibility, which was the basis for current Rule 4.5. (SC EAC Op. 89-18.)
In the situation proposed, Lawyer A is gaining the information of the opposing party’s past criminal conduct (failing to file or pay any income taxes) in relation to her representation of her client so the disclosure of the information would be governed by Rule 1.6. Unless necessary to comply with other law as referenced in Rule 1.6(b)(7), the information described in the fact pattern does not implicate any of the permissive exceptions described in Rule 1.6(b). Further, the consent to disclosure would not be implied in order to carry out the representation. Thus, Lawyer A will be required to obtain her client’s informed consent as defined in Rule 1.0(f) prior to any disclosure of this information. In addition, even after obtaining this informed consent, Lawyer A would not be required to report the opposing party’s actions.
Further, the factual situation proposed does not go beyond this deposition. In the event the information is misrepresented to the court, Lawyer A may have to consider also the duty of candor to a tribunal under Rule 3.3. However, that analysis goes beyond the scope of this opinion on the facts provided.
Since this proposed disclosure to the IRS and, by extension, the state tax authority would fall under the prohibitions of Rule 4.5, the disclosure or threat of this disclosure cannot be used solely to gain advantage in the pending tort action. Thus, Lawyer A likely cannot use any impending disclosure in settlement discussions with the opposing party.
According to Rule 1.0(g), Lawyer A is required to communicate “reasonably adequate information and explanation about the material risks of and reasonably available alternatives to” reporting the information to the IRS and state tax authority, which may include a determination on the wisdom and timing of such report. It may not be in the best interest of the client’s pending action to immediately reveal this information to the authorities. Regardless, Lawyer A’s client may determine that it is not in her best interest to consent to the disclosure at all, and Lawyer A would be bound by that decision.